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Stretching the School Dollar

It's Christmas in Rhode Island: the state Department of Education has released a comprehensive new set of financial data for district and charter schools throughout the state. This is a welcome development given the Ocean State's $331M budget deficit and the need to do more with less. District budget directors and community members alike now have a powerful tool for finding inefficiencies and pushing for spending that is better-aligned with their most important priorities for K-12 education.

Other states (like New Jersey) have mandated that districts publish financial reports using a Uniform Chart of Accounts, a set of guidelines for classifying school and central office expenses and revenues. However, Rhode Island is the first state I know of that provides the reports and raw data in a format that empowers users to perform their own analysis easily ? in this case, using Microsoft Excel. RI's effort also includes the state's rapidly growing charter sector and benchmarks every district against charters and the rest of the state.

The level of detail is exceptional, with reports on spending in functional areas (face-to-face instruction, classroom materials, professional development), subject areas, even how much a district spends on retirees. (One spends 10% of their budget on retired personnel!) The reports could go further, of course. As far as I can tell, the data are not presented at the school level, which would be helpful for comparing spending within districts. Ensuring districts apply the rules faithfully and don't game...

Randi Weingarten is talented at making crazy ideas sound sensible. Today she claims in a Huffington Post op-ed that "you can't make a thorough and objective decision about a teacher's qualifications without a valid evaluation system." (That is, a national one endorsed by the AFT.) She supports this assertion with a vague reference to school administrators' "arbitrary and subjective judgment."

Of course, in the rest of the professional world managers strive to make thorough and objective decisions about their workers without a universal evaluation system. Marketers, engineers, and event planners do not need national "frameworks" and "continuous improvement models" in order to be evaluated by their managers (much less to be fired for malfeasance). It doesn't work perfectly, but it works. Why, in Weingarten's eyes, are teachers so different?

Her op-ed employs the clever trick of arguing that common ground is not that far away, if only those stubborn reformers would be willing to give up and agree with the unions. I'd call that a tautology ? if you'd only agree with my position, we wouldn't be fighting!

This is nearly as insidious as Rick Hess's favorite "it's for the kids" line. Weingarten lays out a fundamental difference between the AFT and reformers like Joel Klein, then papers over it with a call for collaboration that looks strikingly like the "highly effective until proven otherwise" status quo in teacher evaluation. There's nothing transformative about that.

Young teachers turned around a poorly-performing elementary school in Oakland, and now they're all at risk of being fired in a LIFO (seniority-based) layoff mandated by state law:

Futures, previously known as Lockwood Elementary, was redesigned in 2007 and a particularly young staff was hired to change the school's old reputation as a place that held low expectations for its low-income and minority students.

The state education code holds no provisions for performance, though. Instead, it dictates that layoffs must be made in order of seniority. Most Futures teachers have been in the classroom for fewer than five years.

?What did we do the redesign for?? asked the school's principal, Steven Daubenspeck.

The union president blames the school's principal. She implies that all teachers are interchangeable widgets, so he should have kept the school's low-performing senior teachers instead of trying to turn the school around using new blood:

The president of the Oakland teachers' union, Betty Olson-Jones, said she feels for the teachers of Futures Elementary and that she plans to visit the school. However, she said, small school leaders ? like those at Futures ? that hired young teachers over older ones when they were redesigned are causing part of the problem. ?When [the division into small schools] happened, many of the teachers who were there and who wanted to be there and were veteran teachers were not invited back,? she said. ?And so, from 2001 through 2008, you saw a lot of veteran teachers

Much ink has been spilled in the past week over what the pay for performance experiment in New York City's public school system means. Roland Fryer's finding that the NYC pay scheme didn't improve student achievement does not imply that differentiated pay for teachers doesn't work, however. In fact, I'm inclined to borrow a phrase from Chesterton: merit pay has not been tried and found wanting; it has been found difficult and not tried at all.

Merit pay trials in the US have mostly followed a familiar pattern: they're structured as one-time bonuses and are tied to some kind of objective measure like test scores or teacher value-added. This may look superficially similar to professionals' compensation on Wall Street and in the nation's top law firms, but crucial components are missing that make up true merit pay in the professional working world.

Permanent raises based on merit provide a more meaningful incentive than annual bonuses, though the latter are a helpful supplement. Performance-based raises tell professionals that they're hitting milestones on the way to full professional effectiveness (or not), and they communicate the worker's long-term value to an organization. One-time bonuses that sit on top of a never-changing salary schedule that undervalues newer employees' growth are bound to be ineffective by comparison.

Management needs discretion to use both objective and subjective measures of effectiveness to evaluate merit. This is a scary idea for many teachers, but it's a pro-teacher idea at its core. Every teacher...

Take a look at this graph from Robert Costrell and Mike Podgursky's new report on pensions for the TIAA-CREF Institute:

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The blue line is pension wealth accumulated by a teacher under Missouri's teacher pension plan who begins work at age 25. Note that the teacher earns essentially nothing until their 12th year of service and only five figures past their 20th year of service. Over the five years after that, the teacher's retirement wealth increases five-fold.

Lest you think this insanity is particular to Missouri, take a look at neighboring Illinois, where a new law revamping teacher pensions was just passed:

New teachers in Illinois can only hope to get their money back (at best) until they've been teaching for 26 years.

As I've mentioned before, this system can't help but attract highly risk-averse workers to the detriment of others. It creates a situation where the handful of teachers who never leave the profession or work outside the area covered by a given retirement system take money out of the pockets of everyone else. Unless you're one of those teachers, you'd be far better off with a higher base salary and a defined-contribution plan where your retirement wealth increases steadily as a function of your salary.

Almost fifteen years ago, I was sitting in the main auditorium at the Illinois Mathematics and Science Academy, getting ready to start my sophomore year at a public, residential magnet school that billed itself as a "pioneering educational community." What I remember most is how much the dean of students talked about the possibility of failure during that orientation speech. She repeatedly drove home the fact that IMSA was a laboratory, that the things we tried there ? curriculum, instructional methods, even our ways of living together as a community ? might actually leave us worse off than if we'd stayed in our home schools. If we bought into this, though, these experiments could provide a lot of value not only to us but to schools around the state and across the country. It was far and away the most exciting moment of my young life.

Liam's post earlier made me think of this moment. I take his point that the subjects of experiments in education are kids who depend on adults for a good education and often can't recover from disastrous experiences at school. Even if the imperfect solutions found through such experiments can be brought to meaningful scale and used successfully for a while, the cost of failure can be high.

School kids can weather innovative departures from the status quo better than adults, though. Human children are blessed with innate curiosity ? a trait our educational system seems uniquely efficient at driving out...

Education Sector's Chad Aldeman has posted the results of a thought experiment he ran trying to prove that states' assumptions about 8 percent returns on their pension portfolios are not overly optimistic. He seems convinced that states are being conservative in assuming 8 percent returns; I'm not so sure. I don't think it's wise to brush aside the results of academics in finance and accounting in favor of a simplistic analysis that misses some key factors.

First, the mantra of investment professionals is: past performance is no guarantee of future returns. In order to determine whether pensions are adequately funded, we need to understand how markets will perform going forward. This is tough to do reliably ? if Chad or I knew the answer, we wouldn't be working at think-tanks. Many academics are fretting about whether American capital markets will continue to outperform other countries going forward, however.* Second, the 1926-present time period used in Ed Sector's analysis? includes the post-WW2 boom years, which are unlikely ever to be repeated. Third, pension funds look nothing like the balanced portfolio Chad uses in his analysis. In particular, they are heavily weighted in the direction of private capital investments that behave very differently from public markets.

The most important question is whether defined-benefit pensions are good for teachers at all, though. We know that politicians are prone to skip pension contributions to fill other holes in state and local budgets. Illinois has provided us a perfect example of...

I nearly choked on my morning coffee when I read this quote from Mayor Michael Bloomberg's New York Times op-ed on public sector unions:

But unions also play a vital role in protecting against abuses in the workplace, and in my experience they are integral to training, deploying and managing a professional work force.

Bloomberg made his billions with Bloomberg LP, his financial data and analysis firm. Are the programmers and financial analysts there unionized? I bet not. Historically, unions protected minimally skilled workers; outside of the public sector, they've had little to do with protecting and developing professional workers. Now that public-sector unions have enormous leverage over state and local governments, however, they're not going to roll over and take a back seat because Democratic politicians ask nicely.

The rhetoric from some progressive politicians and policy wonks on public-sector unions is verging on the absurd. The message seems to be "we need strong unions, but let's get rid of all the costly practices they fight for." Good luck with that, Mayor Mike.

Say you're a top-performing senior majoring in chemistry at Lawrence or Ripon. You're thinking about becoming a high school science teacher. Would you prefer a $35,000 salary with two pensions and health care benefits in retirement, or would you rather have a 25% higher salary and benefits similar to those your friends going into the private sector receive? Odds are you'd prefer the latter ? especially if, like most young grads, you realize the vast majority of people do not have a 30 year career in one profession these days. You'd rather have more cash to pay down students loans and make your own decisions about how to plan for retirement.

Yet most teacher compensation systems look like the first option. According to an oped in today's Wall Street Journal by the University of Arkansas' Bob Costrell, for every dollar Milwaukee teachers receive in salary, the public is spending another 74 cents on gold-plated benefits ? almost three times the cost of benefits in the private sector. The cost of those benefits, which are skewed dramatically in the direction of older teachers close to retirement, lowers starting salaries and takes choices away from workers.

This tradeoff between benefits and salary doesn't come up much in our discussions of teacher quality, but it should. Most young workers are not attracted by low starting salaries and the faint promise of retirement benefits long into the future. The growing mobility of workers argues for more flexible compensation systems.

Of course, school funding in Washington is far from "uniform." Retirement funding for DCPS teachers falls outside the formula, the city spends hundreds more per student on capital projects for traditional public schools than the $2,800 per student available to charters, and DCPS receives revenue from other city agencies outside the formula. Last year's Ball State study of charter school funding assessed the gap between DCPS and the charter sector in DC at over $12,000 per student in the 2006-07 school year.

Despite this sizable funding gap, the District's charter schools have performed at least as well as traditional district schools, with several star charter operators doing much better. They're doing more with a lot less and should be encouraged both for the choices they provide to parents here and for their admirable efficiency. Instead, Mayor Gray has decided it's "fair" to cut support for highly efficient schools of choice as much or more than support for less efficient district schools. That seems like a missed opportunity to save money in the long run and drive better outcomes for kids.

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About The Editor

Director of Finance and Operations;

Chris Tessone was a Bernard Lee Schwartz Policy Fellow and the Director of Finance of the Thomas B. Fordham Institute. He has strong interests in governance and education finance, especially teacher compensation and school facilities finance.